What background do most hedge fund managers have?

TheNman's picture
Rank: Senior Monkey | banana points 75

What do you guys think the most common background is among most hedge fund managers? (i.e started as traders, analyst, quants etc.)

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Comments (60)

May 25, 2017

$$$

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May 25, 2017

this is the only correct answer

May 30, 2017

absolutely agree. if Dalio didn't have $$, he'd be a cult hippie leader somewhere in Northern California.

heck, look what he's doing at Bwater. very strange culture.

May 30, 2017

Were Dalio's parents even rich? Wikipedia (might not be reliable) says he is the son of a jazz musician... doesn't sound like a wealthy family?

I also remember when reading about Bwater that he started it in his 1BR apartment and when it started it only focused on FX. I also remember him saying he was so broke at one point he needed $4,000 from a family member or grandparent or something.

I could be completely wrong, but it doesn't seem like he came from money...

Nov 6, 2017

I believe he ran into trouble his 8th year when he became poor.

Most of the big hedge guys started out of 1 br apartments. Dalio. TDJ I believe was a floor trader at one point. Griffin dorm room.

But when they started they had no competition. I'm not sure its possible for a lone genius to start a fund like that nowadays.

Array
Nov 8, 2017

I wouldn't say most, probably more like a few. For example Bill Ackman's dad was definitely upper middle class if not flat out rich.

May 25, 2017
nutsaboutWS:

There's many paths. I think the most common are:

Investment Banking (M&A preferred) --> HF Research Analyst --> Portfolio Manager --> Fund Manager

Equity Research --> HF Research Analyst --> PM --> FM

S&T (Traders preferred obviously) --> Junior/Assist Trader at HF --> Trader --> Head Trader --> Fund Manager

Now, skill wise, I think the best HF managers are traders and ex investment bankers.

Hope this helps.

Other than $$$, just from reading around it seems to depend on the fund itself and what its strategies are.

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Nov 8, 2017

its locust not grasshopper... This label was given to an activist fund not a PE firm. That's actually a big difference as Germany displays a very healthy PE market but has no inside HF market (all German focused funds i.e. GPs are based in CH or UK). By value the German PE market is number three in Europe (if we sum BeneLux and France) by volume there are actually more deals than in the other regions. This can be easily explained by a healthy venture industry as well as the Mittelstand i.e. a mid-market based economy. Not many "large cap" deals in Germany.

Anyways: I don't think I fully understand your question.

You are an investment banker and want to set up your own fund via an online trading platform to utilize your relationships with private companies? This will not work per se, nor does this make any sense.

Let me know what you want to do and I tell you how to legally structure it and what to watch out for.

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Nov 8, 2017

Not this again.

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Nov 8, 2017

Do you have half a billion to tie up in your own fund for its entire existence? Start there managing your own money then maybe you have a chance at getting outside investors. Not sure this forum is the right place.

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Nov 8, 2017

Guys,

Thank you all for your kind replies. Really appreciate your insightfulness to my question.
Whether it is locust or grasshopper. I think, you got it.
Franz Munterfering titled all sorts of financial investors who suck the blood from the German companies out in exchange for cutting jobs. This is how the initial discussion started. The case study for Grohe was JIT there (if this is what you meant with activisim).

However, I am keen to find out more about your legal advices.

Thank!

Ersin

Nov 8, 2017

lets start with the basics - what do you do know and what would you like to do

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Nov 8, 2017
  1. Be wealthy. Not rich, wealthy.
  2. Know a large number of equally wealthy people
  3. Have said wealthy people give you their money without any questions asked and no proven track record
  4. Invest it

There you go. Now you have your own hedge fund in 4 easy steps.

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Nov 8, 2017

First of all change your username and dont sign your posts with your real name. Secondly as mentioned the first step is to invest your own money. What do you want to invest into (most likely you have only enough to trade public securities at this point)? Then you try it out, develop a strategy and keep doing this. Once you have done this successfully for a while you think about the next steps (none of which are relevant unfortunately for you at this point).

You are asking all the wrong questions for now. Having a network and some money unfortunately doesnt warrant you starting an investment firm at this point. The best usage of your network is to learn about specific industries you are interested in in which you may invest into (through your trading account). Building an opinion about an investment idea is pretty key and you already have a huge information disadvantage vs. any professional investor on the back of limited resource access.

As I mentioned, take some money, speak to friends who know certain industry verticals, do some analysis and buy public securities in that sector. Watch, learn and repeat.

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Nov 8, 2017

Do you guys seriously think that in this age, he can raise outside money by showing his "track record" with his online broker?

OP: no idea what you meant by "large cap investment banking and private equity exposure"; but given it's solid experience, this is what I would suggest: apply to a top MBA/MFIN (in Europe it would be LBS, Insead, Oxford Said etc.), and try to leverage the school network to get into a top bank or asset management firm, and work your way up there to a senior position in charge of running serious risk. This would probably take much longer than 10 years and it is likely that you'll never get there in the first place; but without a serious and credible track record, forget about raising any money. Partners at Centerbridge and Blackstone, and MDs at the top BB desks aren't gonna wait for some guy getting tired of his Big4 job (lol)...

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Nov 8, 2017

You sound credible. Where do I sign up BAZONGA

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May 26, 2017

In my experience, the really good ones all have a weird background. I think that, like elite athletes or musicians, there's a special talent. The b team is composed mainly of people that worked their way up in the industry, but the A team guys I have met are often really strange guys that kind of fell into the role by meeting another weirdo HF manager that said "hey this is actually a cool job, do you want to work for me?" Think Simons coming from code breaking, Soros the philosopher, Michael Farmer of Red Kite has a divinity PHD I think... I guess if you come from a background different form everyone, you think differently, and then that works out in markets..

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May 28, 2017

Pretty sure those backgrounds aren't common among most hf managers, even successful ones..

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Nov 6, 2017

In the 50 + age set it is fairly common. Its common in tech too. Gates, jobs, zuck didn't follow a traditional path (Griffin is most like zuck/gates background).

Remember 60 years ago being a trader was a job for plumbers and the idiots in the class. The respectable people didn't enter trading. Its why you hear stories of housewives showing up at the exchanges and making 20 million a year a couple years later.

Array
Nov 6, 2017
traderlife:

Remember 60 years ago being a trader was a job for plumbers and the idiots in the class.

When did this change and why?

traderlife:

The respectable people didn't enter trading. Its why you hear stories of housewives showing up at the exchanges and making 20 million a year a couple years later.

Where are the stories of the housewives??? Just to clarify were they trading?

Nov 6, 2017

Yes there's a story of a housewife who showed up ath cbot 30 years ago and was large eurodollar calendar trader. Banks would call her up in the middle of the night to get her a price.

I forget her name.

Array
May 29, 2017

^this. However, having a strong Ivy League background does not hurt.

Oct 22, 2017

I found this article from 2014 about Farmer:

ftp://ftp.mrn.gouv.qc.ca/Public/Bibliointer/tempor...

It seems like his background was LME clerk -> LME ring trader -> divinity school -> Red Kite

Oct 22, 2017

Lol basically. He was just about the top BSD at Metallgesellschaft/MG/Enron/Sempra in the interim, that probably helped a bit too.

Oct 23, 2017

Yeah... it doesn't sound like a "weird" background for a metals guy.

Nov 8, 2017

you're an idiot.

Nov 8, 2017

Come on dude...

Nov 8, 2017

Best place for a future HF manager to start?

Well accounting, obviously.

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Nov 8, 2017

Maybe HR

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Nov 8, 2017

The best place to start out, by far, is by having ultra wealthy parents.

Nov 8, 2017

This is a stupid question. You can technically be a HF manager with 10k and a Bloomberg terminal in your bedroom.

There isn't one "track." Just go somewhere where you get good experience and are able to develop a strong network. You can do that at many places and in a variety of ways.

May 29, 2017

A rich father

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May 29, 2017

Tell that to Bobby fucking Axelrod

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Nov 8, 2017

What type of fund?

To start a macro fund you need an A* in GCSE Economics, for a quant fund you need an A in A-level Further Pure Maths and to start a L/S fund you need to pass any GCSE module.

Nov 8, 2017
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Best Response
Jun 2, 2017

In my experience you can sort of break the community down into conventional and unconventional. '@CaptainJapan 's response touches on this.

If you're asking about the most common background, that's easy: the sell-side, or some big super institutionalized buy-side firm. It also depends highly on the strategy: macro PM's usually come from S&T/econ research, quant PM's come from quant roles, equity guys come from IB or PE or another L/S fund, etc etc. Vanilla equity guys usually typify conventionality imo: target undergrad, then sell-side grunt at a prestigious name, then top tier MBA, then either more IBD, or PE or HF's, then have a not great, but not bad cap raise to start a decently-sized fund, then run book while collecting tidy fees and getting fucked by the market then close down later (i.e. Mindich recently, who incidentally is a total fucking tool), but it's all good because 2/20ish on a few hundred MM or $1MMM is a solid chunk of change. So to recap, if you're just another motherfucker who wants go to Vail and the Hamptons and doesn't love this business: Princeton --> Morgan Stanley --> HBS --> work for another guy's shitty L/S fund --> start your own shitty "long short equity hedge fund focused on generating superior risk-adjusted excess returns by identifying companies trading below intrinsic value with attractive short to medium term catalysts" --> underperform - it's fine, no one can blame you for it. Just BTFD/closet index and pick up 200 bips for free every year - then you can chill with all the other miserable fucks who regret their careers :) Not bad, right?

Or, you can have an unconventional background - they tend to work out well. I don't think that's necessarily because of their unconventional background though. It's more because if you don't check the superficial factors (shiny degree, BB experience, Hermes tie), you have to check the meaningful factors, so people with unconventional backgrounds who get into the biz do so because they're real fuckin' good at running book - they have a higher threshold for proving themselves. Whereas cookie cutter guys can get into the industry just because they look like 'finance guys.' But it's true that original, unconventional characters aren't a huge part of the industry. HF people are definitely better than the sell-side in terms of creativity, etc, but I'd say >80% of the industry still fits into the (admittedly overly-critical) portrayal above. For the rest, by definition there is no 'typical background.' These are the interesting guys. (I'll add the caveat to all of this that I have met many, many wonderfully independent and thoughtful guys who on paper look like the finance drone above).

Forgive the long post and rant, I'm away on an awful vacation and forced myself to not follow markets, so here I am.

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May 29, 2017

Haha what do you have against Mindich? Is it just his underperformance?

May 29, 2017

Nah, lots of pleasant and smart guys underperform. I've been introduced to him like 3 times and he hasn't remembered me, haha. More importantly, people whom I know well and have done biz with him talk a lot of shit. So my comment was mostly hearsay, in fairness

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May 29, 2017

Would people from equity research fit under "econ research" and go to macro funds or do they typically end up at L/S hedge funds?

May 29, 2017

If normal equity research: L/S pretty much exclusively. But the guys who write rates, FX, etc strategy research for banks sometimes get labelled er too, and you don't really see them going to L/S: they go to macro. But, not to throw shade at those guys (I spend >1hr reading sell-side shit everyday), there's usually a reason they're strats and not traders... so limited hf prospects outside of pure research, which can still obviously be lucrative, just not on level of risk taking

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May 29, 2017

The strats guys come from econ research and end up in those roles at macro funds or are you talking about sell-side research guys in general?

May 29, 2017

Performance, w/e. These HBS -> mediocre fund -> fundraise guys don't regret anything. What could be better than printing a few mil a year with limited skill/work?

Oh thats right. F***ing nothing.

May 29, 2017

Maybe you're right. But based just on my own experience, I've never met a guy like that who is actually happy. 'Cause they still work very hard and stress out and are addicted to the tape 6 days a week, they just don't perform. I guess I could have a biased sample, but that's been my observation

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Nov 8, 2017

at a minimum a PhD in three of those fields

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Nov 8, 2017

literally?

Nov 8, 2017

You also need a background in organic chemistry so that you can properly evaluate material nonpublic information pertaining to pre-revenue biotech companies.

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Nov 8, 2017

Economics, finance theory, portfolio theory, investment management, fundamental analysis, modeling, etc. should be taken but are no where close to the information you need.

Taking those classes is like knowing some of the rules in basketball, like out of bounds and what a free throw is. But you're a long way from being Michael Jordan.

Nov 8, 2017
brooksfit:

Economics, finance theory, portfolio theory, investment management, fundamental analysis, modeling, etc. should be taken but are no where close to the information you need.

Taking those classes is like knowing some of the rules in basketball, like out of bounds and what a free throw is. But you're a long way from being Michael Jordan.

I know, but you need to know the rules before your fisrt match, so that's what I want. I know that you can only learn many things playing the game

Nov 8, 2017
stockman:
brooksfit wrote:

Economics, finance theory, portfolio theory, investment management, fundamental analysis, modeling, etc. should be taken but are no where close to the information you need.

Taking those classes is like knowing some of the rules in basketball, like out of bounds and what a free throw is. But you're a long way from being Michael Jordan.

I know, but you need to know the rules before your fisrt match, so that's what I want. I know that you can only learn many things playing the game

You can learn everything from playing a game. Practice > Theory

Nov 8, 2017

Jesus fucking christ man, go get laid or something.

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May 29, 2017

Wrong question.
You should ask what background the BEST hedge fund managers have, not most. Most might as well be mediocre and inferior to passive investing, which is why many hedge funds are actually doing poorly. If you want to aim high, then aim high.

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Nov 8, 2017

i think it depends what type of trader you want to be. one example might be BB S&T Fixed Income -> HF Macro

May 29, 2017

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